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« How Much Transitional Justice Can Regime Change Afford? | Main | The Passing of a True Prince of Modern Classical Liberalism: Richard Cornuelle (1927-2011) »


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Killer quote from the cited article:
"This is leading them down the intellectual cul de sac of precise answers to trivial questions."

An intellectual cul de sac, perhaps, but perhaps also the surest road to professional status, security, and higher income:

"This is leading them down the intellectual cul de sac of precise answers to trivial questions."

Perhaps formal methods are of little help in asking the important questions, but certainly mathematical structure is of help in answering these questions.

@Arash Molavi:

So we have the tools, but we don't have the questions?

I don't understand your reasoning: our current tools cannot help us in asking the important questions, but somehow can help us with answers? How comes?

I was thinking about picking up "more than good intentions" by Dean Karlan and Jacob Appel - anyone know if it's worth the read?

He doesn't actually argue anything in this essay. He asserts things.

I think the claim that people are not trying to answer the big questions is clearly false.

The claim that formal models are not helpful may or may not be true, but he provides neither logic nor evidence to support it.

Development economics is difficult because each situation has so many particularities. The beneficial role of research helps to identify significant variables such as strong institutions, attitudes and worldview, saving, capital formation, etc. At the root, I think development economists need to return to basic principles by revisiting the work of Peter T. Bauer. His definition of development as an expansion in the effective range of choices prepared the way for his student, Amartya Sen's work, Development as Freedom.

It seems to me that the core issue is, how do we look upon the market order?

The mainstream economists still tend to look at it through mathematical general equilibrium eyes, with a complement of statistical analysis. What some have called, "Neoclassical Formalism."

It is not a matter of rejecting all "formalism," if formalism is understood as a theoretical framework within which social and economic events are interpreted, understood, and analyzed. We would not want to collapse into a modern-day form of Historicism.

The problem concerns what type of conceptual framework -- which type of "formalism" -- is reasonable and realistic, given what we assume about how market and social processes operate.

Surely, a blending of Austrian process analysis, with aspects of the New Institutionalism, and elements of Public Choice theory offers the most useful analytical "pair of glasses."

But part of the Austrian component in this "mix" should include elements of Hayek's argument that the most that we can hope for in terms of reasonable and realistic "rigor" is qualitative "pattern predictions" of social and market processes.

To ask for more runs the risk of that "pretense of knowledge," about which Hayek has also warned us.

Our understanding of "human action," the workings of the "catallatic" order (a theme emphasized by both Hayek and James Buchanan), and our historical "wisdom" about what institutional structures have tended to be more conducive to freedom and prosperity (Douglas North, and others) offers that reasonable "formal" framework.

This, clearly, would include case-studies, insights from political analysis (Vincent Ostrom, et al.), and related ideas from other social disciplines.

This would offer a better formalism that would provide more reasonable "rigor" than the "mortis" of mainstream economics.

Richard Ebeling

What is the role of creativity in development?

The catch-up phase can be accomplished, maybe better accomplished, by engineering, mathematical, and chemical students.

But what about moving the frontier? The advanced economies hold a special place for their creative arts and humanities. In a meaningful way the arts put the creative in "creative destruction," as a source of innovation.

Freedom, Individualism, and Entrepreneurship all need the oxygen of the arts to thrive. What about fundamentalist cultures that smother this creative spirit? How can we convince people that there is no technocratic solution to development by defending a place that arts holds in promoting a culture ripe for growth.

The market does a good job of promoting "pop culture" which by almost any definition is largest export the US has. How do we emphasize the CULTURE component of this export?

Tom Palmer gives a great talk where he says that the video images of regular folks sitting around a dinner table loaded with treats was one of the tangible motivators for communist dictators to embrace regime change in the Soviet Union. Peter Leeson said in a lecture, markets come when people start wanting to "keep up with the Joneses." It is enough to simply defend the material excess which come with advanced economies? Or is it something more subtle?

Who are the typical kinds of people who do development economics? Maybe they don't want to hear the answers.

I have of late been raising some of Michael's questions here:

Sticking a little more closely to trying to answer the question Pete asked, we don't usually ask "method" to help us ask the important questions. Rather "method" is a way to get to sound answers to well asked questions.

Identifying "the important questions" involves observing the world and reflecting on one's own values and deciding how we might make a contribution, not a process particularly suited to formal methods.

Method helps us to reaching some answers, but not always. For example, I don't think Akerlof was thinking about equations when he came out with his lemons argument. His discussion of his basic argument contained zero math. Once he'd explained the basic idea with his used car example, *then* out came the math. In other examples, the math comes first and the intuition second. I doubt there's much of a rule here. If we're tied up in a methodological straightjacket (of Bourbaki math or anti-math or whatever) then method can prevent us from finding potential answers to our questions.

Formal methods are this: methods. We cannot pretend that e.g. maths will offer us questions, answers, or highlight causal links.
Questions, answers, and causal links come only from intellectual speculation. In facts many causal links are not merely "mechanical" but rely on the individual perception of reality i.e. lie within the individual mind (it's me who decide that I better save more money if interest rates start rising). Here, formalism is no help.

But formalism, if based on sound assumptions derived by sound intellectual speculation, can ("can" not "surely will") help stylise facts and insulate particular variables or effect, which will not lead to a quantitative result but could ("could" not "surely will") offer an insight into some qualitative consequences.
The fallacies of the models I know lie not on their mathematical logics but on their very premises.

We must not take a "formal model" for "true reality": What we can model is our idea of reality or part of it when derived by sound reasoning.
Nevertheless we cannot deny any role to formalism lest it will necessarily lead to a formalist engineering-style forma mentis... it would simply mean that our minds are too impressionable to rely on, and I hope economists' intellects here are stronger than the tool they use.

Finally: formal methods can help investigations, but the right questions are under the dominion of mere sound thinking.

Formalization can sometimes play the role of spoiler: It can sometimes be used to indirectly test a theory in a way recommended by Milton Friedman. When a particular theory's derivable implications are wildly at odds with observational reality it fails Friedman's indirect test. Here is an example of formalizing in this way (causing Gary Becker's theory of restaurant pricing via roller coaster shaped demand to fail Friedman's indirect test) :

Many in development want to do controlled experiments in order to be perceived as being more rigorous and scientific. But controlled experiments require severely limiting the variables and circumstances so they can be controlled, and that limits the scope of the experiments to the point that the results are trivial.

"Why Are The Big Questions In Development Being Avoided?"

Because the big questions are considered philosophy, not science. Science, in the minds of many, is controlled experiments and nothing else.

Perplexed by this question some years ago I turned to the bookshelf and scanned two relevant texts to find what students were being taught about development economics.

Samuelson et al Economics, (vol 2 macro) third Australian edition, 1992. This is important because it would have reached many students who did not continue on to further study and so the views expressed in it would tend to become the conventional wisdom in the community at large.

Todaro and Smith "Economic Development", eighth edition, 2003. This is more up to date and it should represent something like the state of the art, produced by people who have devoted their whole careers to the close study of these issues and to the critical appraisal of the various rival theories in the field.

Samuelson et al.
They list the four central factors in economic development:
1. Human resources, including supply and education.
2. Natural resources.
3. Capital formation (machines, factories, roads).
4. Technology (science, engineering, management, entrepreneurship).

There is no mention of the institutional framework, free trade, property rights and the structure of incentives to produce for the benefit of consumers rather than the tax collector or crony capitalists.

They suggest that the best brains should be sent overseas to pick up the latest advances, but of in fact the best brains tended to go away and come back as nationalists, socialists and worse (Pol Pot studied in Paris under JP Sartre).

Tragically, the new states mostly decolonised in the immediate post WWII period when the faith in socialism, nationalization of industries and central planning was at a peak and the economics profession was stepped in Keynesian macroeconomics as a handmaiden of planning and dirigism.

Under the heading of ‘comprehensive theories’ to account for differences in economic growth they note theories about climate, the Protestant ethic, rigid oligarchies. In critical commentary they wrote “Where is the Protestant ethic in a sleek Japanese factory? How can we explain that a country like Japan, with a rigid social structure and powerful lobbies in many sectors, has become the world’s most productive economy?”.
I would have thought that the work ethic (a significant part of the Protestant ethic) was clearly apparent in Japanese factories. And they spoke too soon about the productivity of the Japanese economy. By the time the book was published the Japan was two years into the recession that lasted almost up to the present time.

In a table depicting the vicious cycle of underdevelopment there are four boxes. Admittedly the box at the bottom is Low Productivity and the others are Low Average Incomes, Low saving and investment, Low pace of capital accumulation. But there is no hint about the political, social and cultural institutions and incentives that make for productivity. Consequently the readers would be left completely in the dark about the mix of policies required for success and the reasons for the failure of aid efforts in the past.

Moving on to Todaro and Smith (2003), the eighth edition of “Economic Development”, a text that is supposed to represent the state of the art in studies of development and a critical review of the leading theories in the field.

The key chapter is Chapter 4: Classic Theories of Development: A Comparative Analysis. This covers four groups of theories:
1. Linear stages of growth models, whereby the developing nations are supposed to replicate the process of development that occurred in the west.
2. Patterns of structural change, using modern economic theory and statistical analysis to portray the process of structural change that is required for progress.
3. International dependence, including the Marxist exploitation theories. This is a radical critique that gained strength in the 1970′s reflecting the post-Vietnam ideological shift on campuses and frustration with the lack of progress since WW2.
4. The neoclassical, free-market counter-revolution.

The authors adopt the rather odd stance that the fourth group of theories assumed prominence in the 1980s as a result of the ascendancy of conservative governments in the west. In fact this line of thought existed from the 1940s in the works of Peter Bauer and others, and the cogency of its arguments has nothing to do with the political situation in the west.

The objections that the authors raise are mostly a statement of the conditions in the third world are not congenial for free markets. Doh! They confuse the descriptive and normative stance and pretend that the absence of competition, rule of law etc represent a case against the market liberal approach. Instead of pointing out that the absence of the appropriate conditions represent a budget of issues that need to be addressed by policy-makers to obtain progress, they seem to suggest that the theories themselves are defective.

It seems that they are so determined to appear “academic”, fair and even-handed in their treatment of all the theories that they cannot do justice to the market liberal approach. They raise the familiar canard about the supposed lapse from free market grace of some Asian tigers, without reference to the counter-arguments that the success of those nations was inversely related to the extent of state interference. Taiwan and South Korea succeeded despite state intervention (boo to the neoliberals) but finer analysis (for example by Lal) indicated that state intervention was not the active ingredient in the policy mix.
The end result is simply confusing for students who are required to take seriously the ideological posturing of the radicals and the unhelpful formalism that pervades the presentation throughout the book.

The bottom line is that the ideas of Bauer have been shown to be robust, anticipating the more recent critique of grand planning that was launched by Easterly.

This is an extract from a blog post, not written specially for this site:)

Interesting post, Rafe. I took a class in third world development in school and found it engrossing, but as you posted it was exclusively a survey of theories. It accorded Marxism the same respect as all the others. The text was Todaro.

It was frustrating because I didn't have the tools to evaluate the widely differing theories. It seemed that no one knew the answer.

The professor emphasized the need for agricultural development, but didn't explain why some nations developed their agriculture while others didn't. He was mostly interested in description, not prescription.

There was no mention of Bauer. I discovered him long after graduating and felt like someone had turned on a light.

Thanks! You would have enjoyed Stanislav Andreski's books on the African and South American situation as well. Some chapters from his Africa book are on line. The links are near the bottom of the list on this page.

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